United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
AMY ST. EVE, District Judge.
Plaintiff John Fife has filed a motion pursuant to Federal Rule of Civil Procedure 702 and the Supreme Court's decision in Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993) to exclude the testimony and opinions of Michael Parish, Defendant's expert on the federal securities fraud laws and the Depository Trust & Clearing Corporation. For the reasons discussed below, Plaintiff's motion is granted.
On December 4, 2012, Fife filed a breach of contract Complaint against mPhase. (R. 1, Complaint.) In his Complaint, Fife alleges that pursuant to a Securities Purchase Agreement ("Securities Agreement") between St. George Investments, LLC ("St. George"), as buyer, and mPhase, as seller, St. George acquired a Convertible Note, issued by mPhase, in the principal amount of $557, 000.00, dated September 13, 2011 (the "Note"). ( Id. ¶ 6.) Fife further alleges that the Note is convertible into shares of mPhase's common stock that is publically traded on the Over The Counter Bulletin Board ("OTCBB"). ( Id. ¶ 7.) On October 17, 2011, St. George and Fife entered into an Assignment of Convertible Note pursuant to which St. George assigned the Note, among other rights and agreements, to Fife, as the President of Fife Trading, Inc. ( Id. ¶ 8.)
On May 31, 2012, Fife and mPhase entered into a Standstill and Restructuring Agreement (the "Standstill Agreement") pursuant to which Fife agreed not to convert any portion of the balance of the Note into shares of mPhase's common stock - provided that mPhase did not default on any provision of the Note or the Standstill Restructuring Agreement - in exchange for certain payments. ( Id. ¶ 10.) The first payment from mPhase under the Standstill Agreement was due on October 1, 2012. ( Id. ¶ 12.) Fife maintains that mPhase breached the Standstill Agreement because mPhase failed to make the October 2012 payment. ( Id. ¶ 13.) Thereafter, on October 24, 2012, Fife contends that he delivered to mPhase a Conversion Notice whereby Fife elected to convert a portion of the Note's balance into 62, 500, 000 shares of mPhase's common stock (the "Conversion Shares"). ( Id. ¶ 15.) Fife further alleges that mPhase did not deliver the Conversion Shares. ( Id. ¶ 16.) Fife alleges that the balance of the Note as of November 16, 2012, including the redemption premium, is $902, 279.60. ( Id. ¶ 23.) Based on these allegations, Fife sues mPhase for: 1) breach of contract; 2) quasi contract, unjust enrichment and/or quantum meruit; and 3) specific performance.
In its Answer, mPhase denies Fife's allegations, asserts various affirmative defenses, and brings a breach of contract and fraud in the inducement and fraud counterclaim against Fife. (R. 16, Answer.) In one of its affirmative defenses, mPhase alleges that Fife entered into a Consent Decree with the Securities and Exchange Commission ("SEC") that Fife never disclosed to mPhase. ( Id. ¶ 7.) It further alleges that Fife breached the duty of good faith and fair dealing "by intentionally engaging in a course of conduct designed to bring about" the Depository Trust & Clearing Corporation ("DTCC")'s "chill" of mPhase's stock. ( Id. ¶ 9.) mPhase alleges that Fife's "Consent Decree and large conversions into mPhase common stock" caused the DTCC to "chill" mPhase's common stock in June of 2011. ( Id. ¶ 18.) According to mPhase, a DTCC "chill" "requires any trades of a publicly held company's common stock to be settled by delivering certificates only and prohibits the use of continuous net settlement through electronic trading. A DTC[C] Chill results in a significant contraction in the market capitalization of the Company since it becomes very difficult for prospective individual investors to purchase and sell shares in the Company since most retail brokerage firms will not execute transactions in securities of a company" subject to such a chill." ( Id. ) mPhase alleges that Fife's conduct "effectively rendered mPhase's performance impossible." ( Id. ¶ 20.)
mPhase has disclosed Michael Parish as its expert in federal securities laws and DTCC chills. Fife has moved to strike his opinions. The Court addresses each argument in turn.
"The admissibility of expert testimony is governed by Federal Rule of Evidence 702 and the Supreme Court's opinion in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993)." Lewis v. Citgo Petroleum Corp., 561 F.3d 698, 705 (7th Cir. 2009). Rule 702 provides, in relevant part, that "[i]f scientific, technical or other specialized knowledge will assist the trier of fact[, ]... a witness qualified as an expert by knowledge, skill, experience, training or education, may testify thereto in the form of an opinion...." Id . See also Happel v. Walmart Stores, Inc., 602 F.3d 820, 824 (7th Cir. 2010). "The proponent of the expert bears the burden of demonstrating that the expert's testimony would satisfy the Daubert standard" by a preponderance of the evidence. Lewis, 561 F.3d at 705.
Under the expert-testimony framework, courts perform the gatekeeping function of determining prior to admission whether the expert testimony is both relevant and reliable. See id. ; United States v. Pansier, 576 F.3d 726, 737 (7th Cir. 2009) ("To determine reliability, the court should consider the proposed expert's full range of experience and training, as well as the methodology used to arrive [at] a particular conclusion."). In doing so, courts "make the following inquiries before admitting expert testimony: First, the expert must be qualified as an expert by knowledge, skill, experience, training, or education; second, the proposed expert testimony must assist the trier of fact in determining a relevant fact at issue in the case; third, the expert's testimony must be based on sufficient facts or data and reliable principles and methods; and fourth, the expert must have reliably applied the principles and methods to the facts of the case." Lees v. Carthage College, 714 F.3d 516, 521-22 (7th Cir. 2013); see also Pansier, 576 F.3d at 737.
An expert may be qualified to render opinions based on experience alone. See 2000 Advisory Committee Notes to Rule 702. "In certain fields, experience is the predominant, if not the sole basis for a great deal of reliable expert testimony." Id. The Seventh Circuit has repeatedly stated that "genuine expertise may be based on experience or training." United States v. Conn, 297 F.3d 548, 556 (7th Cir. 2002) (quoting Tyus v. Urban Search Mgmt., 102 F.3d 256, 263 (7th Cir. 1996)). "[W]hile extensive academic and practical expertise in an area is certainly sufficient to qualify a potential witness as an expert, Rule 702 specifically contemplates the admission of testimony by experts whose knowledge is based on experience." Trustees of Chicago Painters & Decorators Pension, Health & Welfare, & Deferred Sav. Plan Trust Funds v. Royal Int'l Drywall & Decorating, Inc., 493 F.3d 782, 787-88 (7th Cir. 2007) (citations and quotations omitted). As such, courts "consider a proposed expert's full range of practical experience, as well as academic or technical training, when determining whether that expert is qualified to render an opinion in a given area." Id. (quoting Smith v. Ford Motor Co., 215 F.3d 713, 718 (7th Cir. 2000)).
In assessing the admissibility of an expert's testimony, the Court's focus "must be solely on principles and methodology, not on the conclusions they generate.'" Winters, 498 F.3d at 742 (quoting Chapman v. Maytag Corp., 297 F.3d 682, 687 (7th Cir. 2002)). "The goal of Daubert is to assure that experts employ the same intellectual rigor' in their courtroom testimony as would be employed by an expert in the relevant field." Jenkins v. Bartlett, 487 F.3d 482, 489 (7th Cir. 2007) (quoting Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 152 (1999)). "A Daubert inquiry is not designed to have the district judge take the place of the jury to decide ultimate issues of credibility and accuracy." Lapsley v. Xtek, Inc., 689 F.3d 802, 805 (7th Cir. 2012).
I. Michael Parish
On March 3, 2014, mPhase disclosed Michael Parish as an expert witness in this case and provided Plaintiff with a copy of his expert report as required under Federal Rule of Civil Procedure 26(b)(2)(B). ...